Perhaps We Should Consider the Definition of Insurance

In the healthcare debate, I think it necessary for everyone to take a step back and think about the basic definition of what insurance is. Insurance is the pooling, or averaging of risk. In a way, it has some commonalities of socialism. I know that is a dirty word, but our society could not function without this dirty word. A bank will not loan you money to buy a house, or a car without this insurance or pooling of risk. Health insurance is a waste of money if you never get sick, but will save your life if you do.

In the past, insurance companies have gotten around this pooling of risk by breaking up the pools into ever smaller and smaller puddles. Healthy young people would pay very little, women would pay more, older people would pay a hole lot more, and very sick people would not be able to find coverage at all. If you keep breaking down the pools into tinier and tinier groups, the healthiest people will indeed pay less, but the less healthy people will end up paying premiums that exactly match their expenses. If you break it down enough, insurance ceases to be insurance. Everyone is simply paying all their own personal bills.

Insurance companies devised a strategy to separate the healthy from the sick in their grouping by using a strategy that I call the “Plan Conveyer Belt”. They would offer a new plan x. Anyone could apply for plan x, but the insurance company was free to choose or not choose anyone they wanted into this plan. Plan x was very competitively priced because they only accepted healthy people into this pool. Every year, the insurance company would start a new plan, or pool of people called plan Y, then Z, etc. The healthy people were always encouraged to sign up or switch to the new plan. If you were healthy, they would accept you into this new plan. If you had since became unhealthy, you will not get accepted into the new plan. You were then stuck with the old plan. Now, the old plan is a pool of sicker people and thus the premium is higher. The premiums for the plan from 5 years ago is much higher. The plan from more than a decade ago is now populated only with sick people and the premiums are outrageous. The plan from two decades ago is populated only with very sick people and the insurance company has now successfully purged many of those people from the roles. Obamacare was an attempt to undo this trend.

Business interests left completely to themselves will turn insurance into non insurance. Some company will always offer a super low priced plan only for the healthiest people. And so it goes down the line. Let’s face the fact that health insurance, in order to be successful, has a little in common with socialism.

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David’s random thoughts

Some of these posts have real meaning to me, and some are just silly little stories from the past.
I think that some of the better ones are:
"An Unfortunate Announcement".............. "Frei Family Adventures".......... "Frei Christmas Traditions".......... "I Have to Become President of the United States"...